Talking QCDs in the Giving Season

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Many Americans choose to make charitable donations with their retirement funds. For some it’s a way to give back to the community, while others use it as a way to support causes that are important to them. Whatever the reason for donating–if you choose to do so–you should understand the ramifications of that decision as well as the most efficient way to make a donation. It’s been a while since I’ve written about it, but qualified charitable distributions (QCDs) are probably the most efficient and effective way to make a charitable donation from your retirement funds. In case you forgot what a QCD is, it’s a charitable donation of up to $100,000 to a qualified 501(c)(3) charity made from an IRA. A QCD can offset any RMDs that need to be made for that year, but can only be made if you are 70 1/2 years old. QCDs offer a similar tax outcome to itemizing your charitable giving, if that matters to you. And yes, QCDs are allowed this year even though RMDs are suspended. Which leads me to my next part of charitable giving–the tax implications. While I cannot offer tax advice, I can advise you to speak with a tax professional if you are making substantial charitable donations in the hopes of taking advantage of tax incentives for doing so. That goes for whether you are over 70 1/2 and are making a QCD or are not yet retired, but want to make a substantial donation to your favorite charity. A tax professional should be able to give you a good idea as to how a donation may impact your taxes and whether it’s overall a good idea. However, if you want to know how a QCD or other charitable giving might affect your nest egg or financial plans, you will want to also speak with a certified financial planner or wealth manager.

What’s Your Worst Case Retirement Scenario?

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While I try to be somewhat positive with what I write in this blog, sometimes I find that I have to be real and that being real sometimes requires being a little cynical. This is one of those “being real” blogposts. Retirement doesn’t always happen how you want it to and, with that in mind, sometimes you need to think about those worst case scenarios. For example, how much would an early retirement change your plans? What if you are forced to retire sooner than anticipated due to injury or downsizing–can you handle tapping into your nest egg sooner than expected? These are things you need to think about and, ideally, have a plan to handle such situations. In fact, you probably should think of at least a few “worst case scenario” situations regarding retirement and make plans for how you would tackle them if they occurred. For example, if you were forced to retire early are there assets you could sell or tap into to make ends meet before reaching into your nest egg? What if you find yourself in the opposite type of scenario and don’t have enough saved for when you plan on retiring? Will you work longer or change your retirement plans? Thinking about these worst case scenario situations won’t be pleasant, but it is an important part of planning. You need to be prepared for whatever may come your way and at least thinking about such bad situations is a part of that. If you need help with planning for retirement or want to discuss having a backup plan, of course I always encourage you to speak with a certified financial planner or wealth manager. What’s your worst case retirement scenario?

It’s a Stressful Time to Be Saving for Retirement

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I don’t mean to state the obvious with the title, but I feel like it’s worth mentioning, especially as we head into a winter that may be like none other that we have seen. The next few months seem to be on course to create a lot of anxiety for many Americans. We are currently in the middle of a pandemic that many healthcare professionals are predicting will see a second wave of infections over the next month or so. There is also a transitional period occurring politically that is fraught with unpredictability. And then there is the added stress of the holiday season. Those first two stress points have the ability to shake up the markets and have impacts on the investments that could further impact your portfolio. The third stress point is always there, but could be further complicated by job losses or worry about what the future may hold for your nest egg. I’m not going to sugarcoat it, it can be a bit scary, especially when you don’t know what might happen to send the stock market on a wild ride. While I don’t have any magic solution to your anxiety, I do want to make sure you realize that you are not alone in your worries. Sometimes there’s not much you can do aside from track your investments, make necessary changes and adjustments, and keep living life. We will get through this and we will eventually return to normal. It may be a “new” normal, but it will be much more normal than what we have been going through for most of 2020. Now, as you head into this holiday season, I suggest you focus your time and energy on family and friends and the people who mean the most to you. Yes, you can check your portfolio daily and adjust as needed, but try not to let it be all you think about. Take some time to think enjoy what’s around you and don’t let fear or stress overpower you. Of course, if you do have concerns about your retirement plans, I suggest you speak with a certified financial planner or wealth manager who should be able to relieve any concerns or answer any questions you may have.

If You Can’t Meet Your Retirement Goals, Consider Tweaking Them

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Many financial advisors and wealth managers encourage their clients to have goals when it comes to retirement. Of course, that can mean different strokes to different folks. For example, one person may have a goal of saving a certain amount of money for retirement. Another person may want to save up to buy a retirement home in a warm weather locale. Another may want to have enough saved up to take a big trip every year. Whatever it is, it’s good to set a goal to work towards. However, the road to retirement can be long and along the way things can change. Layoffs happen. Unexpected bills occur. Having children and a family can add some costs along the path to your post-working life. Thus, those retirement goals and benchmarks you set out with can change. And you know what? There’s nothing wrong with that. In fact, it’s a good thing to reassess your retirement goals every so often. Maybe living far away from children and grandchildren doesn’t sound so appetizing. Or maybe you realize that you’re saving more than you anticipated and have a little more freedom with retirement to get a little more fancy with your goals. Or maybe you realize you need to save more. Whatever you find, don’t be afraid to change your retirement goals and use those new goals and benchmarks moving forward. If you need help with your current goals or want to make a change, don’t be afraid to speak with a certified financial planner or wealth manager to get some advice.

Markets Going Boom May Also Go Bust Someday

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If you’ve been following the stock market over the past 30 years or so, then you are probably well aware of the fact that bubbles occur and eventually they burst. It happened a little over 15 years ago with the tech bubble, followed less than 5 years after that by the housing bubble. Those bursts were felt throughout the markets and the country. billions of dollars were lost during those bubble bursts, along with jobs in many sectors and homes in many regions. Why am I bringing this up? Well, I’m using it as a reminder that despite how good things may be–and let’s not kid ourselves, the stock market is still trending upwards–there will come a time when the fun ends. After all, what goes up, eventually comes down. So what can you, as a retirement investor do to take advantage of the good fortunes while also protecting yourself (as best as possible) from the bad? Diversify and make sure to review your investments at multiple periods throughout the year or when you hear of market changes. Diversification spreads the risk around and prevents all your money from going into one area of the market. If you diversify, you can limit the damage that a downturn in one market sector can do to your portfolio as a whole. Of course, along with diversifying, you want to track your investments. That means checking your portfolio at regular intervals and checking it when you hear of changes within market sectors that you are invested in. Tech companies struggling? Make sure your tech investments are safe. Homebuilding ramping up? Maybe you should look to make some investments in that area. Those are just a couple of examples. If you need help with your portfolio or just want to talk about your risk appetite, you should of course speak with a certified financial planner, wealth manager, or investment professional.

Do You Know Some of the 10% Penalty Exceptions?

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If you are an educated retirement saver, then you are probably well aware of the 10% penalty you can get hit with if you take a withdrawal from your IRA or employer retirement plan before age 59 1/2. For many Americans–particularly those hit hard financially over the past 8 months–it can be tempting to take that early withdrawal to stay afloat. However, you’re a smart saver and you’ve most likely put yourself in a situation where you don’t need to hit your nest egg. That said, though, you should be aware of the exceptions to the 10% penalty. Now, I’ve mentioned these exceptions in the past, but I feel the need to mention them again as it’s been a while. There are a few exceptions, though, when you can take that early withdrawal and not have to worry about the 10% penalty. Buying your first home? Take that early withdrawal with no penalty. Want to help out a child with college tuition? Take that penalty free withdrawal. Lose your job and need help affording health insurance? Again, take the withdrawal and not worry about the penalty. These tend to be commonly used exceptions to the 10% early withdrawal penalty. Now, before you go taking huge early withdrawals from your retirement savings accounts, make sure it’s the right decision above all else. If you can get the funds you need from other places (ideally, an emergency savings account) that may be the wiser route to go. Remember, your retirement savings accounts should be an absolute last resort when it comes to taking early withdrawals. You should also meet with a certified financial planner or wealth manager to make sure you are making the best decision for you and your future and to ensure you take the proper steps when taking that early withdrawal.

More Retirement Legislation Could Be Around the Corner

I’ve written about the SECURE Act a number of times over the past 11 months or so since it was signed into law. As you may well know, that legislation brought about some big changes, including raising the age for required minimum distributions (RMDs) up to age 72, allowed traditional IRA contributions past age 70 1/2, and eliminating the stretch IRA. Now, there could be even more changes coming to the retirement planning world in America. Recent bipartisan legislation introduced last week, and referred to as Secure Act 2, could take some of the parts of the original Secure Act even farther. Some of the key points of the legislation are the expansion of automatic enrollment to include 401(k), 403(b), and SIMPLE plans, raising of the RMD age to 75, increasing catch-up limits, and matching employer contributions for employees making student loan payments. That last part is interesting as it would potentially allow employers to make matching contributions under a 401(k), 403(b), or SIMPLE IRA for employees making “qualified student loan payments.” The legislation also includes a number of other somewhat minor changes to retirement plans and planning. While it’s still in the early stages, this legislation could have a major impact regarding how people save and when they start spending their nest egg. Obviously, things still have way to go, but I wanted to make you aware of potential changes that could be coming down the pike. It’s worth at least keeping an eye on.

It All Starts With a Nest

You can’t plan for retirement without first thinking about the money you will be spending in retirement. Thus, your retirement planning–and everything that follows those initial plans–will focus on your nest egg. How you build that nest egg will have a monumental impact on what you can do when you actually most into your post-career life. If you take aggressive steps and keep on top of your nest egg, then you will probably have a good chunk of money ready for when you stop working. On the flip side, if you don’t take steps to properly build up a nest egg or make bad decisions when doing so, then you probably won’t have much flexibility in retirement or may have to work longer than intended to meet your goals. No matter how you slice it, your nest egg is essential to your retirement plans. Now, if your nest egg isn’t quite where you want to it be right now, don’t fret. You can always take steps to get back on track and then determine what’s realistic from there. There is no on-size-fits-all answer for that, but some steps would include re-evaluating your retirement goals, analyzing your portfolio and/or investment decisions, or working with a financial planner or wealth manager to really kick your saving into gear. Each person’s situation is unique regarding how much they need to save for retirement, so some may have a lot of work to do while others may be right on track. What’s key, no matter where you are in your saving journey, is that you never lose track of your nest egg and that you focus on building it up as much as possible. So, how big is your nest egg?

Struggling With Retirement Saving? You’re Not Alone.

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It’s well known within the retirement planning industry that about half of all Americans are having a tough time with their retirement finances. That’s a lot of people. Furthermore, uncertain economic times can push the number of those struggling north of 50%. Considering how many retirees are out there–and it’s impressive due to one of the largest demographics reaching retirement age (*cough* Baby Boomers *cough*) as we speak–that’s a lot of Americans struggling to either save for retirement or stretch out their finances in retirement. With all that said, I want to remind you that you are not alone if you are struggling to either save or make your nest egg last. Many people do and there’s nothing wrong with asking for help in doing so. If you can afford it, a good wealth manager or financial planner can be a huge help. Despite the tone some of my blogposts, I fully understand that saving for retirement is no easy task and it’s been particularly tough over the past 15 years or so. That doesn’t mean you should give up on it, though. In fact, I want to encourage you to save as much as you can and to take steps to maximize your saving, regardless of where you are in your life. Something is better than nothing. So, are you struggling with saving for retirement? You’re not alone, but what are you going to do about it?

An IRA Loan? Yea, Don’t Do That.

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It can be tempting to look at your nest egg and see an untapped source of money, particularly if your nest egg is sizeable and you are nearing retirement. For example, maybe you found your dream retirement home and need money for a down payment. You may look to your IRA for a short-term loan to meet those money requirements. I’m here to tell you that that is a bad idea and to discourage you not to do so. The biggest reason being that you don’t want to tap into your IRA monies until you actually retire and, even then, you will want to have a plan for doing so. You’ve worked hard to save up for your post-work life and you want to make sure that money goes towards your retirement goals (of course, if purchasing a retirement home is part of your plan, then that’s a different discussion). The other risk of viewing your IRA as a loan source is the risk of making a mistake when taking out money. Keep in mind that there are two routes you can go when taking money out of your IRA before reaching retirement age. First off, you can take a distribution, pay the taxes and penalties, and then not have to worry about what you do with the money. The other option is to take out the money and do a 60 day rollover, which will involve paying back the money within that 60 day window. There’s a lot of risk involved with that. I repeat, there is a lot of risk involved with doing this. Mainly, if you take out the money, is there any guarantee that you will recoup it within that 60 day window? Chances are, you are going to be making a large purchase if you need a loan (probably talking thousands of dollars), so what are the chances that you will make that money back in two months? If you are certain that you can do that, then maybe you can consider it. However, if you aren’t so sure that you can complete such a transaction in that timeframe, stay away from this idea. That can lead to a lot of problems if you aren’t able to put the money back within those 60-days. Hint: Don’t open yourself up to the IRS taking more of your money through penalties! If you are in need of money, you should consider other types of loans or selling off other assets before even considering your IRA as a loan source. You may even want to really think about whether you even need to make the purchase at that time and whether you can put it off until you actually have the funds and leave your retirement money alone.